The MacNeil/Lehrer Report; Supply-Side Economics

JIM LEHRER: Good evening. It won`t be long now. just a matter of a few hours, before we`ll know the details of what President Reagan has in mind to solve our economic problems. He is to lay them out later this evening in a nationally-televised speech to a joint session of Congress. But while the specifics remain unknown, the broad sweep of his approach is already common knowledge.

It`s a two-pronged -- some critics say "two-axed" -- program: on the one hand, deep cuts in the federal budget; on the other hand, deep cuts in the tax rate for individuals and business. The tax cutting is based on the so-called Kemp-Roth proposal advocated by Mr. Reagan in his presidential campaign. It calls for 10 percent a year tax reductions for three years -- 30 percent in all. Although Mr. Reagan may not go the full 30 percent for upper-income Americans. The theoretical underpinnings of cutting taxes as a solution to inflation are bound up in something called supply side economics. Their number one theorist, the man whose ideas are most credited with converting Ronald Reagan to supply side-ism, is a California economist named Arthur Laffer. Tonight, in preparation for receiving the details from Mr. Reagan, we look at those theories behind them with Mr. Laffer himself on one side and George Perry, an economist who thinks it`s mostly nonsense, on the other. Robert MacNeil is off. Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim, Arthur Laffer has been preaching the wisdom of tax rate cuts for years. In addition to President Reagan, Laffer`s disciples include people like the new Office of Management and Budget Director, David Stockman, and Congress-man Jack Kemp. Mr. Laffer got his first taste of presidential economics in the early `70s when he was chief economist in the Nixon administration Office of Management and Budget. Although his reach extends once again to the Potomac, Mr. Laffer spends most of his time in California where he is a professor at the University of Southern California`s business school. He`s with us tonight from the studios of public television station KCET in Los Angeles. Mr. Laffer --

ARTHUR LAFFER: Good evening.

HUNTER-GAULT: Good evening. We`ve heard a lot about supply side economics and the Laffer Curve. In the simplest of terms, can you explain all that?

Mr. LAFFER: Well let me try if I can. Basically, supply side economics is that brand of economics that focuses on very personal and very private incentives. The basic assump-tions are that people don`t work to pay taxes. People basically work to get what they can after taxes. The people don`t save to go bankrupt. People save to make an after-tax rate of return on their savings, and it`s the very personal and private incentives that matter in the disposition of income, of production, and of savings. It`s not the aggregate demand, or at least exclusive aggregate demand approach that failed us so miserably in the `70s.

HUNTER-GAULT: How does it get to be called supply side?

Mr. LAFFER: Well, I guess the other side had ignored supply for so long, and focused exclusively on aggregate demand, that this just took up the new part which is supply. But it`s very old and very traditional economics: it`s called classical economics. And it`s been around for a long time.

HUNTER-GAULT: How does it work, exactly `

Mr. LAFFER: Well, basically, when you change incentives ? -- through either government spending or tax programs -- what you`ll do is you`ll change human behavior. And when you change those programs, human behavior changes in such a way as to minimize the disincentives, or to maximize the incentives resulting from work and savings.

HUNTER-GAULT: Well, now, maybe you can give me an example of what you`re talking about.

Mr. LAFFER: Well, one that you mentioned before was the so-called Laffer Curve -- although it`s been around in existence for probably a thousand years at least if not much longer. Here, basically they look at total revenue. But what we know is there are two effects tax rates have on total revenue. The one effect we call the arithmetic effect which, if you raise tax rates, it`s unambiguously true that you collect more revenue per dollar of tax base. But likewise, there`s an economic effect. If you raise tax rates, you reduce the incentives for doing the activity, and you shrink the tax base. These two effects always work in the opposite direction, and as often as not, an increase in tax rates will ultimately lead to less revenues, not more. For example, I mean, does anyone honestly believe that New York City could solve its fiscal crisis by raising its tax rates, and driving the last two businesses out? New York City is bankrupt primarily because their tax rates are too high, not too low.

HUNTER-GAULT: Is there any place where your theory has been tried?

Mr. LAFFER: In very recent times, of course, it`s been tried in Puerto Rico. Governor Carlos Romero Barcelo has cut tax rates across the board there by a substantial amount, and the results have been really quite good. The results in California with Proposition 13 have not been bad at all. In fact, Jack Kennedy cut tax rates in the United States in the early `60s, and the performance was outstanding. Harding and Coolidge cut tax rates in the `20s. and of course we had the Roaring Twenties. If you take the opposite, I guess it was Herbert Hoover who raised tax rates in `29, and you can see the period that followed. Richard Nixon increased tax rates dramatically in the `70s, and you can see the result there. Jimmy Carter, most recently, raised tax rates a lot during the past four years, and you can see how the budget went into bigger deficit, and inflation rates increased, not went down.

HUNTER-GAULT: Well, let me ask you this. How soon and what kind of impact would the kind of tax cutting you`re talking about have on inflation?

Mr. LAFFER: Well, it depends on how the tax cuts are done, and precisely in the form it takes. But if you take the Kennedy administration -- the best research to my knowledge done on this subject is the very scholarly research done by Professors Joines, Canto and Webb. And what they found is that the pay-back period is very, very quick indeed. In fact, within a year and a half, revenues were back to where they otherwise would have been in their research.

HUNTER-GAULT: And what impact would it have on inflation?

Mr. LAFFER: Oh, on inflation, basically, it lowers inflation. It doesn`t increase it. For example, do you remember what the inflation rate was like during the Kennedy admin-istration?

HUNTER-GAULT: About 1 percent, I think.

Mr. LAFFER: That was per year, by the way, not per month as it is now. [laughs]

HUNTER-GAULT: Would it also reduce unemployment at the same time?

Mr. LAFFER: Well, if you remember in the Kennedy administration, in 1961 the unem-ployment rate was 6 3/4 percent, wasn`t it? By the time 1965 came around, it was below 4 percent. Nixon took it from percent to almost 8 percent in 1975. Frankly, tax rate reductions increase employment, output and goods, and lower unemployment rates, and lower inflation.

HUNTER-GAULT: What about the federal deficit?

Mr. LAFFER: Well, when 1 look at it there, Kennedy again in 1961 -- the federal [budget] was in deficit by almost $4 billion. By 1965, the federal budget was in surplus. Carlos Romero in Puerto Rico inherited a large deficit in the Puerto Rican budget, and now he`s running a surplus. Revenues have increased dramatically there in Puerto Rico. Nixon took us from a surplus to a deficit by tax increases.

Mr. LAFFER: Dr. Laffer, as one of the President`s economic advisors, what direct contribution have you made to the economic plans he`s unveiling tonight?

Mr. LAFFER: Oh heck, I don`t know. I spent Tuesday with him as a member of his -- of the President`s Economic Policy Advisory Board. And I guess that was the only direct contact specifically on this program.

HUNTER-GAULT: Well, I mean, how closely do his proposals follow your ideas?

Mr. LAFFER: Well, depending upon specifically what he announces tonight, fairly close-ly. I would prefer to see larger cuts at the higher end of the tax brackets, but in fact I understand that they may not be as large in the higher ends. I`d also like to see a complete elimination of the distinction between unearned and earned income. It makes no sense whatsoever to discriminate between sources of income. And lastly, I`d surely like to see indexing in the proposals for income tax rate reductions.

HUNTER-GAULT: On that point of lowering the amount [of] the taxes that the higher-income people would be exempt from, how significant a departure from that -- how significant is the departure -- I mean, what impact would it have on the plan as you see it?

Mr. LAFFER: Well, I see it as a very, very serious departure from the types of promises he made, and the types of things that would be good economics, frankly. Now, that doesn`t mean it can`t be done in later stages, and I`m sure President Reagan will do it in later stages -- will lower the highest rates. I`m sure that by the end of his term, we`ll have the highest tax rate in America will be no more than 35 percent on capital and on labor.

HUNTER-GAULT: Well, you don`t seem as upset as your so-called disciple. Jack Kemp, who said he`s going to go his own way now with his own plan because he finds that move on the President`s part unacceptable.

Mr. LAFFER: Oh, Jack Kemp is very close to President Reagan. In fact, is supporting him all the way in every regard, frankly. From my own standpoint as an economist, I focus strictly on the economics, and President Reagan has four years in office, and he has a lot of tax bills that will come through. And I`m sure the highest rates will be lowered, and I`m sure the distinction between unearned and earned income will also be eliminated. And this is just the first bill that he`s going to do in his four years in his first term.

HUNTER-GAULT: All right. Thank you.

Mr. LAFFER: And I`m very pleased with him.

HUNTER-GAULT: Thank you. Jim?

LEHRER: Now, to an economist who sees it differently. Very differently. He`s George Perry, the senior economist for the Council of Economic Advisors in the Kennedy ad-ministration, and now chief economic forecaster and a senior fellow at the Brookings Institution here in Washington. Mr. Perry, what`s wrong with what Arthur Laffer just laid out?

GEORGE PERRY: Well, when I hear Art talk about these things. the theoretical pan of it sounds almost mystical, and the evidence sounds very selective. Let me start with the evidence part first. As Art said, this is the kind of subject that has been around in economics for a long, long time, and there really has been a lot of study of it. When we ask what are the effects of cutting taxes on supply, the answer is very different depending on what taxes you`re talking about. When you talk about cutting personal income taxes in a massive way, particularly at the high end of the tax bracket, you have to ask yourself, is that going to make people work more or less? And who is going to be affected? Most people don`t really have much option about working more or less, about putting out more work effort. Most jobs are organized in a way that doesn`t even allow that kind of a response. Take someone who does have that kind of a response, though, just to crystallize the issue. You have a dentist who plays golf Wednesday afternoons. You now cut his tax bracket. What are you going to do? Is he going to play less golf, and drill more teeth? Or is he going to take another afternoon off as well --

LEHRER: What do you think he`s going to do?

Mr. PERRY: -- and play even more golf? The answer in the case of a dentist is just about indeterminate as far as what statistical studies you have been able to do. By that I mean the answer in the case of a fairly high- income individual -- that is, the incentive to work more, the incentive to work less -- just about balance out. If we ask what may really happen in the real world, I would expect to see some fairly noticeable effects -- small but measurable -- for second-earners. That would be the place where you would expect the impact. And that`s a problem which the Congress is trying to address --

LEHRER: Second-earner in a household. They might work more, they might go get a job that they might not otherwise get. Is that what you mean?

Mr. LAFFER: That`s right. There is some little evidence that where there`s an effect that`s noticeable, perhaps large, it would be for a second-earner who now gets taxed at a relatively high rate, and who might be induced to work if the rate was somewhat lower. Put that on a national scale, and you have what would be a very small effect in total additional labor supply. I think that`s just trying to put the thing in the context of what a large mass of studies have been able to show. That`s for the labor supply effect. There`s a second effect which sometimes gets mentioned, and that is that you might induce more productivity growth. You might put the money in the hands of people who would invest in particularly useful kinds of ventures. Once again, the effect there -- from anyone who has been able to study it - - is very tiny. Alongside these effects, and they`re there and they`ve been measured, we have to ask, are there other tax changes which could do the job better? And I think in the case of productivity growth, the right answer is go directly to the things that affect the return to capital; worry about the fact that depreciation is not adequate, and ought to be corrected for --

LEHRER: Excuse me. I want to get to alternatives to the Laffer approach in a moment, but you heard what he said -- that this would lower the inflation rate. That`s the name of the game right now for President Reagan. You say it won`t lower the inflation rate?

Mr. PERRY: Yeah. There`s no evidence that it has any direct effect on the inflation rate, and there`s no presumption that it does. I do think that the reference to the Kennedy tax cuts --

LEHRER: Yeah. I was coming to that.

Mr. PERRY: -- shows this proposal that Art`s got to be about 180 degrees off. The name of the game today is doing something about inflation. There was no inflation at the start of the Kennedy tax-cut era. At that time, what was deliberately attempted was an expansion of demand, the idea was that we had a very under-utilized economy, and we ought to put people back to work, and one part of that program ought to be tax cuts to increase spending by consumers.

LEHRER: In other words, it had a different purpose, you mean?

Mr. PERRY: A different purpose, and in an entirely different environment. When we refer back to that today -- when Art does -- we`re sitting here in July and we`re sweltering. And he`s saying stoke up the furnace, and turn up the burner. It worked last January, and everybody felt better. Last January is early 1960. What we wanted to do was stoke up the furnace, and get output in this economy expanding more. Today, it would be nice to do that. The inhibiting factor is that we have a lot of inflation, and anybody who doesn`t think that we have a very different inflation environment today than 20 years ago, comes from another planet than I do. Now --

LEHRER: What do you think, just to -- what do you think the effect on the inflation rate would be if President -- Arthur Laffer through President Reagan -- - gets his 30 percent tax cut across the board?

Mr. PERRY: Well, first let`s distinguish what President Reagan is proposing, which is not a pure Arthur Laffer approach at all, but a combination of large tax reductions balanced by large spending reductions. And the proposal that Art was making, which is large tax reductions because somehow they would pay for themselves, and we wouldn`t have to worry about the expenditure side at all -- If we stick to the Laffer proposal straight out, I think we would exacerbate inflation; we would push this economy too far, too fast; our financial markets would see this, and would panic; I think interest rates would be driven up; we`d have really a bad economic situation. Because right now most markets are worried about inflation, and are looking for evidence that we`re determined to restrain it. Now, there is something attractive about Art`s disregard for this. If you really didn`t have to worry about inflation, sure you`d like to cut taxes; sure, you`d like to see a big expansion of jobs and output. That`s what we were in a position to do in the early `60s, and what we did do in the early `60s. I should mention that at that same time we introduced the major supply side changes in the tax system -- of both the investment tax credit, and accelerated depreciation to make investment more attractive and more profitable. That kind of change, I think, is overdue once again. We have to once again try to make investment more profitable, and there have been bills before the Congress to do that, and there will be, I think, in the proposals that we`re about to get. What we`re trying to distinguish here is whether that rather, you know, homely and slow approach -- keep the economy basically cooled down, encourage capital formation, and gradually unwind the inflation rate -- is the way we ought to go, or whether we ought to believe something which, I think, has very little evidence in favor of it: make massive cuts in personal taxes, and somehow hope that you`ll get some good out of that, and it won`t be swamped by the big increase in demand that it would generate.

LEHRER: I see. Thank you. Charlayne?

HUNTER-GAULT: Dr. Laffer, what about Dr. Perry`s point -- you come from another planet in terms of the inflation environment and the Kennedy years and now?

Dr. LAFFER: Oh, my goodness. You know, I guess, it`s hard to start. But I guess it`s basic to all economics that when you tax something, you get less of it, and when you subsidize something you get more of it. If you look at our policies over the last 10 years, you can see we`ve basically been taxing work, output and employment. And we`ve been subsidizing non-work, leisure, and unemployment. It should come as no shock to any economist that we`re getting so little work output and employment, and we`re going to get so much nonwork, leisure, and unemployment. On the point of inflation -- let me ask you. If you have a bumper crop in apples, what happens to the price of each apple? It goes down; it doesn`t go up. If you have a shortage of apples, the price of each apple goes up. if you have a bumper crop in the production of goods and services, the price of each unit falls. If you have a shortage of goods and services -- a recession, a contraction, a decline -- the price goes up. By cutting tax rates, you increase the production of goods and services, and lower inflation.

HUNTER-GAULT: All right. let me sec if Dr. Perry follows that point.

Dr. PERRY: We already know what kind of response we get from having a lot of people trying to work. We know that because we can measure the response of unemployment. The response is slight. It`s a painful process. We don`t know if we want to go that route. Those were all hard questions to ask about whether you can whittle away at inflation through expanding the number of people that want to work and are looking for work. But we get a measure of that every time we have more unemployment.

Dr. LAFFER: But, George, look at the past 10 years.

Dr. PERRY: It`s not really a bumper crop of apples because that`s not the way inflation works. The wage-setting in this country is not an auction market; it is not a question of as soon as you have some more workers, the wage comes down and inflation comes down. If it were that way. we`d have cured inflation long ago.

HUNTER-GAULT: What about that. Dr. Laffer?

Dr. LAFFER: Well, you can see the record of the past 10 years, frankly. We`ve raised our tax rates dramatically over the last 10 years; we`ve devalued the currency; we`ve increased government spending, and you can see the type of inflation record. It stands as plain as anything. By raising tax rates, we`ve contracted the economy, and we`ve caused inflation to persist and increase. During the `20s --

Dr. PERRY: But Art --

Dr. LAFFER: -- when taxes were cut there --

Dr. PERRY: -- there really is no -- I think we -- I think we should agree that there is no necessary connection between the two things you`re citing, because those two things have gone hand-in-hand before; and they`ve gone hand-in-hand in times when prices have gone up --

Dr. LAFFER: Oh. George, there is --

Dr. PERRY: -- and when prices have not. The inflation problem really is more comp-licated than that.

Dr. LAFFER: George, there is no relationship between inflation and unemployment.

HUNTER-GAULT: Excuse me. just a minute. Dr. Laffer. Quickly could you finish your point. Dr. Perry, so Dr. Laffer can respond?

Dr. PERRY: Well. I think inflation is a more complicated process than that. We can`t use analogies with a big bumper crop of apples, because that`s not the way most markets in this country work. If they were, as soon as we started to sec idle resources, we`d see inflation so away. The dilemma of fighting inflation in this country is that it works much more slowly than that, and that you`re not going to get that kind of response on the inflation front. I think the kind of crudest hoax in this whole plan isn`t that you would do something terrible to the economy if you had what, on balance, was a package that combined expenditure cuts and tax cuts. You might decide that was good or bad on a lot of other grounds, but you probably wouldn`t wreck anything macroeconomically. The thing is. you`re likely to buy that package for all the wrong reasons. In particular, you`re likely to buy it because you think it`s the end of inflation, and it won`t be.

HUNTER-GAULT: Dr. Laffer?

Dr. LAFFER: Well, basically, obviously. I disagree completely. In fact, George men-tioned a little earlier that in fact a tax cut across the board would lead to panic in the financial markets. I ask you, what has the past year been like? He talks about the analogy with bumper crops in apples as being inappropriate, yet he refers to someone from another planet. You know, basically, we`ve tried the economics of austerity -- what we call the deep root-canal-work theory of economics -- and George Perry`s economics has failed. It`s failed us miserably during the `70s. The Nixon-Carter-Ford economics doesn`t work. The economics of Jack Kennedy -- which was supply- side, and was argued as such by Jack Kennedy -- the economics of Harding and Coolidge with Andrew Mellon was supply-side, and argued as such, did work. Look at Germany and Japan. They`ve cut their tax rates throughout the entire postwar era. Look at their inflation record versus, let`s say, the U.K. and Italy which have raised their tax rates. Just plot for a moment on the earth, and here in the United States, real GNP growth per quarter against the rate of inflation by the GNP price deflator, and you`ll see that they move in the opposite direction. Just the exact reverse of what George Perry is saying. Austerity is --

HUNTER-GAULT: Dr. Perry?

Dr. LAFFER: -- is not the solution. People are the solution. HUNTER-GAULT: Dr. Perry?

Dr. PERRY: I would disagree with most of the facts that Art has thrown us. And I wish that the solution was simply, "let `er rip," because that would be the best of all worlds. I don`t think that`s what history does teach us. Furthermore, I guess I do have to respond to the notion that George Perry`s economics has been tried and failed. All countries -- almost all countries -- industrial countries -- have had a lot of inflation during the past decade, and very few of them have managed to get rid of it. What has been, I think, correct is that people like me have anticipated the problems we`ve had, have correctly forecasted them, and no one has liked the news. That`s not a failure of the model. It`s not a failure of the economic theory. Because the message was that this problem was a stubborn one, and that it would be made worse by a variety of things which in fact happened -- like the big fuel-price increases we had -- and that the remedy for it was a number of things which would work slowly, and were not politically attractive. So, I don`t think you can look at the past decade as one which disproves what we`ll call mainline economics, because mainline economics has had it exactly right: it`s been a bad message. Now, I don`t think that we should dispute the medical community because they`ve got bad news to give us about cures for cancer, and we shouldn`t jump off and all start using laetrile instead. Art is telling us, "look, these guys haven`t cured inflation." He didn`t tell us that they`ve told us just about what would happen -- they`ve been good forecasters, and their message has been bad news -- but he said, "look, they haven`t cured it, so let`s try something that I`ve got to offer.`" Now, what Art has to offer isn`t --

Dr. LAFFER: George, it`s not I. It`s been around for a long time, frankly.

Dr. PERRY: Oh, I agree that it`s not brand new and that there really is a lot of evidence on how it works.

Dr. LAFFER: Wage and price controls have obviously not worked in the `70s; reduction of government spending -- although it`s been attempted throughout -- has not worked: raising tax rates hasn`t worked. Look at the `70s. Devaluation of the currency hasn`t worked. You know, frankly, we`ve tried a lot of major policies that I was taught when I was an undergraduate at Yale University, and these policies have not worked. Our balance of payments is up --

Dr. PERRY: Oh. but Art, you know that most of what you`ve ticked off --

Dr. LAFFER: -- our inflation rate`s bad: deficits arc still in order -- Frankly, the way to work it is the way Jack Kennedy -- and when you were there, you were right -- the way Jack Kennedy did it: cut tax rates, and cut them the most on those who make the most, and cut them the least on those who make the least. Kennedy cut lax rates on business a lot. Investment tax credits -- he shortened depreciable lives; he cut tux rates on traded pro-ducts; he cut government spending as a share of GNP --

HUNTER-GAULT: Dr. Laffer. could I just interrupt you? What about the point, though, that the inflation was not the problem then that it is now?

Dr. LAFFER: Well, you could look at all sorts of episodes where we`ve had faster income growth, and inflation has subsided. In the `20s -- from 1922 to `29 -- prices fell on average 1 1/2 percent per annum. Look at Germany and Japan. Their inflation record is far better than the United States, or the U.K.`s. or Italy`s. And they`ve cut their tax rates versus us. And we`ve raised our tax rates. You know, inflation is not increased by producing more goods and services. It is reduced by producing more goods and services. Inflation is the price of goods and services in terms of money, and the more goods and services you have, the lower the price of each unit. It`s basic simple economics.

HUNTER-GAULT: All right. Jim?

Dr. PERRY: It`s too simple and too basic. We don`t live in an apple market, and what you --

LEHRER: Yeah, but what about his point that he mentioned -- the other countries in Europe, the `20s, not only the Kennedy time that you mentioned -- What about the rest of the record that he has --

Dr. PERRY: I think a lot of that reads very differently than Art`s been describing. Let`s look at the Kennedy period. Taxes were cut, output expanded, and eventually output expanded too far. I think everybody agrees --

Dr. LAFFER: Too far?

Dr. PERRY: - -- that the inflation that we`re still suffering from today really got its toehold in the last half of the 1960s when we pushed this economy too far. We put an amazing number of people to work at that period. We got unemployment very low. All the good things that Art would like. And that was the beginning of the inflation that has stayed stubbornly with us ever since. I think you can understand the record of the whole 15 years as originating in that period when we did push the economy into the inflationary zone. Now it`s already in the inflationary zone.

Dr. LAFFER: It was Lyndon Johnson`s tax surcharge.

Dr. PERRY: Let`s look at the story in Germany. When you look at the success that Germany has had, the first thing you have to realize is that it has accomplished that success by stopping the growth of production and output. That`s not a remedy that I would like to see us use here very much, but if you look at it. that`s the story in Germany. It shook its unemployment back to Yugoslavia, Italy, and other places that its workers came from, but if you look at the story of what`s happened to its output during the period that it managed to get a better handle on inflation than the rest of the world, it suppressed output, it restrained it. Industrial production and investment have been in a depressed state in Germany during this period. Now. that`s realty the evidence of how Germany did it. and Germany was able to succeed doubly because by going it alone in this very restrictive path, it gained through an appreciation of the currency. Art ticked off an awful lot of things in a big hurry, one or two of which I would agree with, and a lot more which really make, you know, don t have anything to do with what we`re talking about. Nobody ever pretended that depreciating the currency was going to solve inflation. Everybody knew that depreciating the currency would worsen inflation. So sure, that`s one of the things that happened, and that`s one of the things that contributed to a worsening.

LEHRER: Let me ask each of you, beginning with you. Mr. Laffer -- we only have a minute or so left. Is there any question in your mind that, like it or not -- George Perry like it or not -- that the political winds are with you. and that this idea as proposed by President Reagan is going to be enacted by the Congress, and you`re going to get a try to see whether your theories work?

Dr. LAFFER" Well, I`m not really -- personally, I`m not an expert on the politics, and I don`t know if the political winds are with us or not. I think the economic winds are with us frankly, and when you look at economics. I think, the evidence of the past is clear. And it`s very clear about personal incentives.

LEHRER: George Perry, you are here in Washington. Do you think that Mr. Laffer`s ideas are going to get a try?

Dr. PERRY: Oh. not in as pure a form as he would like. The President is going to propose cutting expenditures along with cutting taxes, and it remains to be seen how far Congress goes along with him. That particular combination is a sort of traditional conservative Republican combination. It involves, probably, restricting the economy, and I would expect some payoff to come in inflation. I think a sensible forecast with no special magic of the Laffer sort is that we`ll see inflation rates down to 7 or 8 percent by late 1982. That s kind of a straight forecast of what would happen if we got the kind of package I anticipate.

LEHRER: We have to leave it there. Mr. Perry, and Mr. Laffer in Los Angeles, thank you very much for being with us.

Dr. LAFFER: Thank you

LEHRER: Good night. Charlayne.

HUNTER-GAULT: Good night. Jim.

LEHRER: And we`ll see you tomorrow night. I`m Jim Lehrer. Thank you and good night.